Momentum Investing: Backtesting
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I have watched recently published podcast of Mr Prashant Shah with Mr Vijay Thakkar on Momentum Investing.
I was aware of the concept and I had already tried to carry out backtesting of the Momentum investing concept in GoogleSheet on Nifty 200 shares. I had pulled daily data of Nifty 200 shares for 8.5+ years with the help of GoogleFinance functions. Although it was done with very limited resources but I could get clear idea of its benefits. But deployment of this concept in live scenario was impossible for obvious reasons.
Mr Shah has thoroughly explained how it can be backtested and implemented in the virtual and thereafter in the real environment. Immediately, I opened account with Definedge.
After doing multiple rounds of backtesting on different Nifty group shares I got some very good results. One of the results is attached. CAGR of 60+ is unbelievable. Max DD is 10.86%. I tested the strategy for various periods and got good results.As I am new to this platform and still exploring the features, I want to know that which built-in functions can be used in reducing the drawdowns in real life scenario.
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Good work in a short time. The drawdown in your strategy is already under control. You may also explore using a Market Trend Filter to further manage drawdowns.
Please test the strategy results across multiple periods and on different groups. It is acceptable if the CAGR reduces slightly, but ensure you check it during bearish market phases as well as on a broader universe like the Nifty 500 index.
For deeper understanding, you can refer to my book on Momentum Investing or watch the videos available in the Learn section of Momentify.
Regards,
Prashant -
Hi Rajendraji, I am eager to know, how the CAGR is attained taking base Group as Nifty 200... The Highest CAGR i found at 53% when i back tested with Nifty Midcap, 25% retracenebt from 52 Week High, with 20 DSmart, Keep stocks- No new entry and monthly rebalancing, 12 stocks and 24 Exit Rank.. Can you please explain, how the 60% CAGR is attained with 60% positive trades..
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Hi Rajendra ji, I could see 53 % CAGR with Nifty Midcap, with specification like in market trend D Smart 20, Keep stocks, 12-24 stocks and exit rank, monthly rebalancing. I could see onky 37% CAGR in Nifty 200..
Could you please share the specific parameters or criteria you used while back-testing this impressive 60% CAGR strategy in Nifty 200?.
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Sir, I could get CAGR of 53% in Nifty midcap over 5 yr period. Could you please show the specifications how the 60% CAGR attained.
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@Rajendra Manke
Hello Sir, congratulations on achieving such low Max DD figure in your strategy. If you could please share the parameters set to achieve such low Max DD, it would be very helpful. Thank you. -
This backtest was done in the month of Aug but now the same parameters are not giving such results. I am giving result of one more backtest. You can try/modify.
While the back tests suggest the possibility of substantial gains—running into crores of rupees—there is no guarantee that markets will behave in exactly the same way in the future. Performance may improve, or it may deteriorate. More crucial than the projected gains is our psychological preparedness: Are we truly ready to remain invested for the duration assumed in these back tests? How will we react when faced with such huge potential profits? At present, many of us may be comfortable investing ₹20,000–25,000 in a single stock. But when the situation demands an allocation of ₹4–5 lakhs in one company, the psychological challenge could be significant.
Therefore, our focus should be on adapting these strategies to minimize drawdowns, as initial losses can easily undermine confidence.
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@Rajendra Manke these are excellent results sir, and I hope its profitable for you. Your maximum draw down is already under control.
I need to learn P&F now in order to understand how this strategy works.
thanks for sharing -
great insight rajendra bhai, hope you keep posting more insights and make this thread more valuable, will try to post insights too
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Just for information : group selection- https://forum.definedgesecurities.com/topic/3638/nifty-500-vs-nifty-500-multicap-50-25-25
